Consider the Following Statements About Residual Income

question 49

Multiple Choice

Consider the following statements about residual income:
I. Residual income incorporates a firm's cost of acquiring investment capital.
II. Residual income is a percentage measure, not a dollar measure.
III. If used correctly, residual income may result in division managers making decisions that are in their own best interest and not in the best interest of the entire firm.
Which of the above statements is (are) true?

• A) I only.
• B) II only.
• C) I and II.
• D) II and III.
• E) I and III.

---

Definitions:

Cutting Off

Intentionally stopping blood flow or interrupting a process or activity.

Mediastinum

The central compartment of the thoracic cavity, located between the lungs and containing the heart, trachea, esophagus, and other vital structures.

Body Cavities

Hollow spaces within the human body that house organs and provide protection, support, and space for organ development and function.

Thoracic Cavity

The part of the body enclosed by the ribs, sternum, and vertebral column, containing the lungs and heart.